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Don’t Frighten the Horses – the Political Economy of Singapore’s Foreign Exchange Rate Regime since 1981

Author

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  • Peter Wilson

    (SCAPE)

  • Gavin Peebles

Abstract

In this paper we explore the links between Singapores foreign exchange rate regime since 1981 and the broader aspects of its political economy. Singapore has been remarkably successful in achieving fast growth, low and stable price inflation and a strong external position. An important part of this strategy has been its managed floating exchange rate regime, which is generally regarded as being successful, but this needs to be viewed within the broader context of the governments pragmatic socialism to keep inflation low and stable as the bedrock for attracting inflows of mobile foreign capital to sustain long-run export competitiveness, and an economic strategy based on high levels of centralized saving and investment, a high degree of government involvement in the economy and the relentless accumulation of foreign exchange reserves. Indeed, part of the reason why managed floating has been successful in Singapore has been because the credibility of monetary policy has been enhanced through the governments command over resources and its ability to respond quickly and flexibly to changes in economic circumstances using, where necessary, unorthodox policies of demand management to cut business costs. Exchange rate policy, therefore, becomes an integral part of the policy to redistribute income to capital to sustain employment and prevent mobile firms from leaving Singapore. By the early 1990s the imperative became to diversify the structure of the economy away from exclusive reliance on a predominantly foreign manufacturing base and to reduce the extent of government involvement in the economy and it became harder to justify high levels of centralized saving and investment. The dilemma is that the government is finding it difficult to extricate itself from the economy without compromising policy effectiveness, and there is little evidence that dependence of the economy on foreign capital and labour has diminished.

Suggested Citation

  • Peter Wilson & Gavin Peebles, 2005. "Don’t Frighten the Horses – the Political Economy of Singapore’s Foreign Exchange Rate Regime since 1981," Development Economics Working Papers 22583, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:22583
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    References listed on IDEAS

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    1. International Monetary Fund, 2000. "Singapore: Selected Issues," IMF Staff Country Reports 2000/083, International Monetary Fund.
    2. Huff,W. G., 1997. "The Economic Growth of Singapore," Cambridge Books, Cambridge University Press, number 9780521629447, October.
    3. Gavin Peebles & Peter Wilson, 1996. "The Singapore Economy," Books, Edward Elgar Publishing, number 871.
    4. Chow, Peter & Kellman, Mitchell & Shachmurove, Yochanan, 1994. "East Asian NIC manufactured intra-industry trade 1965-1990," Journal of Asian Economics, Elsevier, vol. 5(3), pages 335-348.
    5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    6. Mukhopadhaya, Pundarik, 2001. "Changing labor-force gender composition and male-female income diversity in Singapore," Journal of Asian Economics, Elsevier, vol. 12(4), pages 547-568.
    7. Gavin Peebles & Peter Wilson, 2002. "Economic Growth and Development in Singapore," Books, Edward Elgar Publishing, number 2468.
    8. Huff, W G, 1995. "What Is the Singapore Model of Economic Development?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 19(6), pages 735-759, December.
    9. Wilson, Peter, 1994. "Export earnings instability of singapore, 1957-1988: A time series analysis," Journal of Asian Economics, Elsevier, vol. 5(3), pages 399-412.
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    Cited by:

    1. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility : A Comparative Counterfactual Analysis Of Singapore 1994 To 2003," Macroeconomics Working Papers 22584, East Asian Bureau of Economic Research.
    2. Peter Wilson & Henry Shang Ren Ng, 2009. "Managing Exchange Rate Volatility: A Comparative Counterfactual Analysis Of Singapore, 1994–2003," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(04), pages 543-568.
    3. Peter Wilson, 2015. "Monetary Policy And Financial Sector Development," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(03), pages 1-25.

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    More about this item

    Keywords

    exchange rate; political economy; Singapore;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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